KARACHI: Thin demand for vehicles and soaring interest rates continued to cast gloom on the auto sector as the amount of outstanding auto loans shrank for the 13th consecutive month by Rs8.5 billion to Rs285.2 billion at the end of July from Rs293.7bn in June.

According to the State Bank of Pakistan (SBP) data, the highest financing of Rs368bn stood at the end of June 2022 and since then it has been sliding as a result of rising interest rates which is now at 22pc. The rest of the damage to auto leasing was given by the central bank through various measures to curb demand followed by skyrocketing prices of vehicles.

An upper limit of Rs3m on auto loans and a reduction in repayment duration by the SBP further hit sales of local assemblers.

Fahad Rauf, head of Research at Ismail Iqbal Securities, said the 25 interest rate after Kibor plus and various steps taken by the SBP to slow down auto demand are not allowing people to lift vehicles through bank financing.

The SBP’s data shows that new vehicle buying through banks is not coming up while the net retirement is going on, he said.

Mr Rauf said the market is abuzz with mixed reports that the interest rate will either go up given rising inflation or stay stable followed by fear of more price hikes in vehicles due to the rupee’s depreciation against the dollar.

“I think the auto sector will remain in a bit of crisis till December and the sales situation may also remain alarming even during 2024 with no sign of a big drop in interest rate, prices and rupee-dollar stability,” he said, adding that the interest rate would not drop instantly but it may go down gradually in the second half of 2024.

Indus Motor Company (IMC) Chief Executive Ali Asghar Jamali said in light of the prevailing circumstances, the country’s automobile industry is facing the worst-ever economic downturn. During the year, local and global disruptions along with import restrictions on CKD kits, resulted in plant closures, thereby causing massive joblessness in the industry.

IMC profit falls

IMC’s profit after tax for the year ended June 30, 2023 declined by 39pc to Rs9.66 billion from Rs.15.80bn in FY22. Sales of locally assembled and imported units plunged by 58pc to 31,602 units from 75,611.

The company assembled 32,696 units as compared to 72,438. Net sales turnover during FY23 fell by 36pc to Rs177.71bn from Rs275bn during FY22.

The board of directors announced a final cash dividend of Rs29 per share, making the total annual dividend for the year Rs71.8.

Published in Dawn, August 29th, 2023